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Sunday, November 25, 2012

Economist: Local recovery ‘mediocre,’ another 2 years away

Arizona can expect a tepid economic recovery next year with an improving housing market but don’t expect a robust economy until 2015.

That’s the view of local economist Elliott Pollack, who spoke last week at an economic-forecast event presented by the Arizona School of Real Estate and Business in downtown Scottsdale.

“It’s a mediocre recovery,” Pollack said. “It’s been bad for so long that it will seem better than it is.”

Pollack, one of the featured speakers, was upbeat about declines in distressed-housing inventory and foreclosure notices as the market stabilizes. But he warned that the recovery could be derailed by some local and national issues that are already creating uncertainty.

Nationally, the so-called fiscal cliff is poised to push the country back into recession by the second quarter of 2013 if Congress doesn’t act, Pollack said.

Major tax cuts are scheduled to end at the start of next year along with deep cuts in federal spending for defense and other programs.

Pollack, who admitted he was a cranky after returning from an overseas trip, is skeptical of what will happen in Washington because he said there is “no leadership in the White House or Congress.”

“If anyone tells you we don’t need spending cuts and tax hikes they’re a (expletive) moron,” said Pollack, apologizing for his profanity. “We have to have tax increases.”

Demand high for home lots

Locally, home builders are ramping up to meet demand for new homes but there is a scarcity of developed lots and available land for new communities.

“We will run out of lots in 2014 and then you’re done building,” he said.

That shortage has been good for him. Pollack said he bought land in greater Phoenix in 2008-09 when prices plummeted and is selling it back now.

Earlier, land broker Nate Nathan said land sales have been brisk. By the end of the year, land transactions will be completed on 110,000 residential lots in Maricopa and Pinal counties, Nathan said.

Longer term, Pollack said the Phoenix area will add 1 million people and 200,000 homes within the next eight-to-10 years.

Baby Boomers have delayed their retirement but many of them eventually will retire in the Valley, he said.

Pollack said much of the growth will be in outlying areas because there is not enough infill land to meet the demand for housing.

He also dismissed speculation that the Valley will run out of water.

“There is not now, nor will there ever be, a water shortage,” said Pollack, adding that increasing water rates would reduce use and extend the supply.

Investors bullish on market

Pollack told the group of real estate professionals that investor groups from Wall Street are continuing to buy up big blocks of single-family houses in the Valley.

That has created fear that local prices will fall if real estate investment trusts sell thousands of homes at the same time.

But adding 2,000 homes to the available listing would not have a huge impact in a housing market with about 1.2 million homes, Pollack said.

“I still think it’s a good time to buy single-family houses,” he said.

It is encouraging that more than half the monthly home sales are traditional deals, not short sales, foreclosures or investor flips, Pollack said.

During the recession, traditional sales dipped as low as 24 percent, he said.

“Essentially we’re working our way through the problem,” Pollack said. “The lights are getting brighter.